Data points to housing slump, but interest rates offer a chink of optimism

This past week has brought some much needed optimism to the mortgage market with rates falling below the 6% mark.

However, the prolonged period of high rates has had a catastrophic impact on the housing market, as shown by both the Bank of England Money and Credit statistics and the Government’s property transactions data this morning.

According to the Bank of England, net mortgage approvals for house purchases ebbed from 49,500 in July to 45,400 in August, which is the lowest for six months during what should be a busy summer period.

This is echoed in the property transactions data showing that the provisional seasonally adjusted estimate of the number of UK residential transactions in August 2023 is 87,010, 16% lower than August 2022 and 1% higher than July 2023.

The remortgaging sphere too witnessed a contraction, with approvals plummeting from 39,300 to a modest 25,000 during the same period, a trough unseen since July 2012. This may be because so many people that had their mortgage up for renewal in the near future opted to get it sorted as early as possible fearing rates were going to get even higher.

We should hopefully see a break in the wait-and-watch attitude among buyers for either a rollback in house prices or a further abatement in mortgage rates now that rates are slipping and sellers are trimming asking prices.

Elsewhere, worryingly, consumer credit increased with net borrowing escalating to £1.6bn in August from £1.3bn in the preceding month. On top of this, there was a sudden withdrawal of £0.3bn from banks and building societies in August, snapping a two-month streak of net deposits.

Following the Bank of England’s recent pause on interest rate hikes, we should have cautious optimism that the slightly improving market sentiment will cause buyers, sellers, and investors alike to have more confidence in the UK property market.

Whether this pause in rate hikes will manifest into a more robust housing market or merely a temporary respite remains completely linked to monetary policy decisions and the overarching economic direction.

Karen Noye is mortgage expert at Quilter